Insight Enterprises, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Insight Enterprises fourth quarter and full year 2020 operating results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Glynis Bryan, Chief Financial Officer. Thank you. Please go ahead, ma'am.

Thanks, Shelby. Welcome, everyone, and thank you for joining the Insight Enterprises Earnings Conference Call. Today, we will be discussing the company's operating results for the quarter and full year ended, December 31st, 2020. I'm Williams Freund, Chief Financial Officer of Insight, and joining me is Ken Landnick, President and Chief Executive Officer. If you do not have a copy of the earnings release that was posted this morning and filed with the Securities and Exchange Commission on Form 8K, you will find it on our website at insight.com. under our investor relations section. Today's call, including the question and answer period, is being webcast live and can be accessed by the investor relations page of our website at insight.com. An outside copy of the conference call will be available approximately two hours after completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today February 11th, 2021. This call is a property of Insight Enterprises. Any retransmission, redistribution, or rebroadcast of this call in any form without the express written consent of Insight Enterprises is strictly prohibited. In today's conference call, we will refer to non-GAAP financial measures as we discuss the fourth quarter and full year 2020 financial results. When referring to non-GAAP measures, we will refer to such measures as adjusted. Non-GAAP measures to be discussed in today's call include adjusted earnings from operations, adjusted earnings before interest taxes, depreciation, and amortization, also referred to as adjusted EBITDA, adjusted diluted earnings per share, and adjusted return on invested capital. You will find a reconciliation of these adjusted measures for actual GAAP results included in the press release and the accompanying slide presentation issued earlier today. Please note that unless highlighted as constant currency, all amounts and growth rates discussed are in US dollar terms. Finally, let me remind you about forward-looking statements that will be made on today's call. All forward-looking statements that are made during this conference call are subject to risks and uncertainties that could cause your actual results to differ materially. These risks are discussed in today's press release and in greater detail in our most recently filed periodic reports and subsequent findings with the SEC. With that, I will now turn the call over to Ken. And if you're following along with the slide presentation, we will begin on slide four.

Ken? Hello, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2020 operating results. This past year is one of the most challenging we've faced as a company and as a society as a whole. From the difficulties of the COVID-19 pandemic to the important social justice issues deserving of our attention. We have navigated our fair share of complex experience together, and in insight, we did it while living our core values of hunger, heart, and harmony. We saw our values and actions around the globe demonstrated by our warehouse and distribution center teammates who tirelessly and bravely reported to work each day so essential workers and others had equipment they needed to fight against COVID-19. We saw our values further demonstrated as teammates across the company donated their time, talent, and finances to make a difference in their communities. through 3D printing of face shields, sewing of masks, food donation deliveries, hand sanitizing, sourcing, and monetary donations to teammates in crisis. I could not have been more pleased with our teammates' incredible display of culture, and I've never been proud to be part of our Insight family. In the fourth quarter, the demand environment continued to be challenged, where we focused on answering our clients' most pressing IT needs, while helping many plan for the investments required to support the business as the economy recovers. During the fourth quarter, we drove double-digit growth in cloud and warranty solutions, which pushed gross margins to 15%. And we'll combine with the positive effect of the acceleration of our PCM integration, including the cost synergies, this helps us achieve adjusted earnings from operations growth of 12% year over year. Specifically for the fourth quarter of 2020, consolidated net sales were 2.3 billion, flat year over year. PCM results were included in our full fourth quarter 2019 results, the acquisition having closed on August 30th, 2019. Gross margin expanded 30 basis points year-over-year to 15%, reflecting a higher mix of cloud and warranty solutions. Adjusted earnings from operations were 92 million, up 12% year-over-year, and in the GAAP basis, earnings from operations were up 24% compared to the same period last year. Adjusted diluted earnings per share was $1.76, up 12% year-over-year, and in the GAAP basis, diluted earnings per share was $1.50. Moving on to slide five. For the full year of 2020, we reported record net sales of $8.3 billion, an increase of 8% over 2019. The benefit of including PCM in our results for the full year of 2020 was partially offset by the negative impact of COVID-19 on overall demand and certain supply chain challenges in the business during 2020. Our team's focus on growing our services and solutions mix Helped improve gross margins by 90 basis points to 15.6%, a new record for the company. Cloud as a percent of gross profit increased to 20% compared to 18% in 2019. We also expanded to service gross profit 130 basis points year over year to 48% of consolidated gross profit. Our business generated $356 million in cash flow from operations for 2020, a record for the company. On to slide six. Topline growth and gross margin expansion combined with continued expense discipline, including acceleration of cost synergies related to the PCM acquisition drove adjusted earnings from operations up 14% in 2020 compared to 2019. On a gap basis, earnings from operations increased 13%. Adjusted liabilities per share for the full year 2020 was $6.19, an increase of 14% over 2019 results, and represents another record for us. On a gap basis, the losing earnings per share for the full year of 2020 was $4.87, an increase of 10% over 2019. Finally, adjusted EBITDA for the full year of 2020 was $367 million, compared to $322 million in 2019. Next on slide seven. As we look back to our business for the full year of 2020, we were proactive in our approach and were pleased with all we accomplished under challenging circumstances. As the pandemic began, The health and safety of our teammates was most important. We prioritized their safety and well-being and ensured that they felt supported during these uncertain times. With COVID-19 forced the closure of most Insights workplaces in March 2020, we quickly enabled remote work for roughly 10,000 teammates. We completed the integration of PCM in 2020, retiring nine ERP systems into our SAP platform and also accelerating some of our cost synergies. We are exiting the year with approximately $70 million in annualized run rate cost savings, one full year ahead of our previously committed schedule. Expertise across our solution areas allowed us to help clients adapt to new challenges presented by COVID-19. Initially, we supplied hardware and other critical IT solutions that able to work from home and other essential functions. Our digital innovation solution area created the connected platform detect to prevent solution to help our clients provide a work, a safe work environment for their employees and customers. We continue to modernize our online experience to creatively reach and grow strong client relationships through digital engagement and marketing. In the second half of the year, we again see hardware bookings recover in North America, the region with the highest mix of hardware net sales. We also invested in our sales force to ensure we have key sales and technical talent in place to compete as the market continues to recover. As a result, we're well-positioned to help our clients drive business outcomes in a highly digital environment. Our focus on culture, teammate benefits, and leadership development continue to be acknowledged with several more key recognitions this year, including number 296 out of more than 750 on Forbes World's Best Employers, number 70 on Fortune's 100 Best Workplaces for Diversity and Inclusion, and number 62 on Forbes 2020 list of America's Best Employers for Veterans. Fast Company recognized Insight and World Change in Ideas Awards for Social Good and Human Rights Campaign Foundation recognized Insight for LGBTQ inclusive business practices. In addition to these global and national placements, we were recognized regionally as a blessed place to work in Chicago, Phoenix, Arizona, Australia, the United Kingdom, Italy, and Austria. Insight Canada was also recognized number three of the top 100 solution providers. Additionally, for 2021, Insight was recently recognized as an employer of choice by Fortune, placing number seven in the information technology service industry on the list of Fortune's world's most admired companies. This was the first time receiving this prestigious award for Insight. Now onto slide eight. As we navigated the challenges of 2020, we continued to execute against our strategy to deliver IT solutions to our clients. Our efforts to deploy innovative solutions to the edge were recognized in the Forrester New Wave for Computer Vision Consultancies published in Q4 2020. Insight was named a strong performer by Forrester, highlighting their expertise in building computer vision solutions that fit current hardware constraints and the Internet of Things platform to manage them. With a global team of 1,500 digital innovation engineers, architects, and technical consultants, Insight maintains the expertise to design and manage computer vision models deployed across mobile devices, vehicles, and in settings with limited or no network connectivity. An example of this innovation is our digital innovation team, which helped a manufacturer of commercial generators identify production process issues. As a result, the manufacturer successfully reduced scrap, realized labor savings, and achieved significant ROI. We also leveraged our managed services to help our clients create better workspaces and simplify device management. For example, our connected workforce team helped an insurance company optimize end-user support across 300 locations by implementing a managed service desk and filled with support teams through insight. The client improved cost control, resolution times, which resulted in increased end-user satisfaction. Slide nine. As we transition to 2021, we reinforce in our belief that the IT industry is resilient and the demand for IT solutions will continue to evolve during economic downturns and recoveries. Across the markets where we do business for 2021, industry analysts expect low to mid-single-digit growth across hardware, software, and services sales. In the first quarter, we're seeing hardware bookings in North America improve by mid-single digits year-over-year compared to the first quarter of 2020. This positive data point is supported by elevated backlog coming into 2021. It could lead to above-average seasonal results in the first quarter compared to the fourth quarter of 2020. We're well-positioned to help our clients solve complex IT challenges. We believe that these strategic investments should be in the go-to-market solution areas over the last several years, as well as investments in our solutions and technical talent in 2020, positioned as well to execute our business goals in the new year. As a reminder, our solution areas are First, connected workforce. We help organizations keep their employees connected, productive, and secure with professional and managed services that maximize return on investment and free up internal resources. We help our clients work smarter. Second, cloud and data center transformation. We help businesses modernize and secure critical platforms to transform IT. Through end-to-end services from architecture to management, we help leverage the right platforms to increase agility and support innovation. Third, digital innovation. We help customers navigate their digital transformation journey end-to-end to improve clients' business performance, engage customers, and uncover new revenue streams. We help our clients innovate smarter. Our supply chain optimization competency is the foundation of our solution areas to ensure we're providing our clients with the critical products and services that will help them manage today and transform for the future. On to slide 10. As we move forward into 2021, we remain committed to our long-term priorities, which include continuing to innovate in order to capture market share in high-growth areas such as the cloud and the intelligent edge, developing and delivering solutions that drive better business outcomes for our clients, expanding and scaling our business with strategic clients in ed markets, and lastly, continuing to optimize client experience and our execution through a relentless focus on operational excellence. We believe that by investing in our operating segments, organized around these three long-term priorities, we will deliver our five-year key imperatives for value for our shareholders, clients, partners, and teammates. As a reminder, these goals are go faster than the market at an 8% to 10% CAGR, expand EBIT margin to 5% to 5.5%, optimize return on invested capital to a range of 19% to 21%, and increase services gross profit as a percent of total GP to between 50% and 52%. To support our go-to-market strategy globally, we have a strong operational platform that includes scalable IT systems and processes, robust digital marketing capabilities, and a culture of continuous business process transformation and automation. In 2021, we plan to continue to invest in these critical areas with the goal to deliver a great client experience while also optimizing our infrastructure to scale the future growth. We continue to make meaningful progress as a company as we successfully transformed our business from an IT reseller to a well-respected intelligent technology solution provider with deep expertise across multiple technology areas our clients value most. We have a single united global leadership team integrated in scalable IT systems and operations, a highly engaged workforce, and a clearly defined go-to-market framework around our solution areas. We believe we're well-positioned to compete in the marketplace and win as we head into 2021 and beyond. I'll now hand the call back over to Glynis.